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Taxation of Foreign Dividends for South African Residents: Complete Guide on Mauritian Discretionary Trusts

Taxation of Foreign Dividends in the Hands of South African Residents Receiving Dividends from a Mauritius Discretionary Trust

31/03/2025/0 Comments/in Taxation

Overview

The South African Budget Speech 2025/26, delivered by Finance Minister Mr. Enoch Godongwana on March 12, 2025, did not introduce any changes to the taxation of foreign dividends. The existing rules continue to apply, including a maximum effective tax rate of 20% on foreign dividends received by South African tax resident individuals from a foreign company.

This article explores the key taxation concepts applicable to South African tax resident individuals who are beneficiaries of a Mauritius discretionary trust holding shares in a Global Business Company (GBC) or an Authorised Company (AC).

What is a Foreign Dividend?

Understanding Foreign Dividends: Legal Definition and Implications

A foreign dividend, as defined in section 1(1) of the South African Income Tax Act (“the Act”), refers to any amount paid or payable by a foreign company in respect of its shares, provided it is treated as a dividend under the tax laws of the company’s jurisdiction.

When a Mauritius GBC or AC distributes dividends to a Mauritius discretionary trust, which then makes a distribution to a South African beneficiary, it falls within this definition.

The definition of foreign dividend further stipulates that in order for an amount to qualify as a foreign dividend, it must be treated as a dividend or similar payment by that foreign company for purposes of the laws relating to tax on income on companies of the country in which that foreign company has its place of effective management.

For a structure to be tax-efficient, proper planning is crucial. Simply establishing a foreign trust and foreign company such as a Mauritius trust and a GBC / AC, without strategic foresight and expert structuring, could lead to unintended tax consequences in South Africa and potentially in the foreign jurisdiction as well!

Tax Treatment of Foreign Dividends in South Africa

Dividends Tax Considerations

Foreign dividends are not subject to South African dividends tax unless paid on listed shares on the Johannesburg Stock Exchange (JSE) and do not constitute an in-specie asset distribution.

Since dividends paid by a Mauritius GBC or AC to a Mauritius discretionary trust do not fall under these conditions, they are not subject to South African dividends tax.

Normal Taxation of Foreign Dividends in South Africa

Foreign dividends form part of “gross income” under the Act and are subject to normal tax unless they qualify for exemptions under Section 10B.

Tax Exemptions for Foreign Dividends

Full exemption (Participation Exemption):
- Applies if the recipient directly holds at least 10% of the equity shares and voting rights in the foreign company paying the dividend.
- Indirect shareholding through a trust does not qualify.
Partial exemption:
- If the participation exemption does not apply, 25/45 of the foreign dividend received by natural persons, deceased estates, insolvent estates, and trusts may be exempt from tax.
- This effectively subjects the remaining portion to a maximum 20% tax rate.

Attribution Rules: Sections 7(8)(aA) & 25B(2B)

Section 7(8)(aA): Attribution of Foreign Trust Income

Effective from March 1, 2019, this provision applies when:

A South African resident funds a foreign trust via an interest-free or low-interest loan, donation, or settlement.
The foreign trust holds more than 50% of the shares in a foreign company.

If applicable, the participation exemption is ignored when calculating the tax liability of a South African beneficiary.

A typical structure in Mauritius would be:

Practical Example of Attribution

A South African resident makes an interest-free loan of USD 10,000 to a Mauritius trust, which then acquires 100% of a GBC’s shares. The GBC generates income and distributes USD 2,000 as dividends to the trust, which in turn distributes USD 1,000 to the South African beneficiary in the same fiscal year. If the beneficiary is taxed at 45%, the tax payable would be:

20/45 X USD 1,000 = USD 444

USD 444 x 45% = ~ USD 200

This results in an effective tax rate of 20%. Since the loan was interest-free, the full amount is deemed to be a donation, disposition, or settlement.

Section 25B(2B): Taxation of Accumulated Dividends

This rule applies when a foreign dividend is accumulated in a trust and distributed to a South African beneficiary in a later tax year. In such cases, the full participation exemption is disregarded, but the partial exemption (25/45) may still apply.

If the dividend is distributed within the same tax year in which it accrues to the trust, Section 25B(2B) does not apply.

Where a South African resident is a beneficiary of a Mauritius discretionary trust which holds at least 10% but less than 50% of the foreign company, the full participation exemption shall still not be available to him as he does not directly hold the shares in the Mauritius GBC. The partial exemption may however still be available.

Foreign Tax Rebate in South Africa

Under Section 6quat, a South African tax resident may claim a foreign tax rebate if foreign withholding tax was levied on dividends before distribution to the trust. This helps mitigate double taxation, but the rebate is limited to the South African tax payable on the dividend.

Mauritius Taxation Considerations

Dividends paid by a Mauritius GBC or AC are exempt from Mauritius corporate tax and withholding tax.
A Mauritius trust, if structured as a non-resident trust, is not subject to Mauritius corporate tax on its foreign income.
Any distribution by a Mauritius trust to a beneficiary is treated as a dividend and is not subject to withholding tax in Mauritius.

Compliance with International Tax Norms

Mauritius has implemented substantial tax reforms to align with OECD international standards. The France based OECD Forum on Harmful Tax Practices (FHTP) has confirmed that Mauritius does not have harmful tax practices, making it a globally recognized and compliant jurisdiction.

To fully benefit from Mauritius’ tax advantages, compliance with the reformed tax framework is essential.

There is no substitute for expert guidance and expertise when venturing into the international arena of global business structuring and international taxation!

Conclusion

For South African tax residents who are beneficiaries of a Mauritius discretionary trust, understanding the tax implications of foreign dividends is crucial. While a well-structured Mauritius GBC/AC & trust arrangement can optimize tax efficiency, distributions to South African beneficiaries remain taxable, at least partially.

Given the complexity of cross-border taxation and South Africa’s stringent compliance landscape, expert advice is critical.

At GWMS Ltd, we specialize in designing tax-efficient international structures that align with regulatory requirements while optimizing benefits for our clients.

4 Parameters to Consider before Structuring a GBC/AC with a Trust

18/03/2025/0 Comments/in Company Structure

Imagine having complete peace of mind, knowing your wealth is not only protected today but secured for generations to come. This isn’t just a comforting thought – it’s entirely achievable through strategic structuring of your global assets. For discerning investors and business owners with international interests, the powerful combination of a Mauritius-based Global Business Company (GBC) or Authorised Company (AC) with a carefully designed trust can create an unparalleled fortress around your wealth. But this fortress must be built on solid foundations.

At GWMS Ltd, we’ve guided countless clients through this critical journey – transforming complex financial challenges into robust solutions that stand the test of time. The secret lies not in following generic templates, but in mastering four essential parameters that determine whether your structure will truly deliver that elusive peace of mind you seek.

Understanding GBC/AC and Trust combinations

Before diving into the key considerations, it’s important to understand what these structures offer individually and in combination. A GBC or AC in Mauritius provides an excellent vehicle for international business operations and investments, while a trust creates a flexible mechanism for asset protection, tax mitigation, protection from creditors, exemption from forced heirship rules, and succession planning.

When combined strategically, these structures can create powerful synergies that maximise both business efficiency and personal wealth protection.

The 4 key parameters for successful structuring of a GBC/AC with a Trust

When designing your ideal wealth protection framework, four critical elements will determine whether your structure truly delivers long-term security or merely creates a façade of protection. Let’s examine each in detail to ensure your GBC/AC and trust combination stands on solid ground.

1. Clearly define your specific asset protection needs and goals

The foundation of any successful structure begins with clarity about what you’re trying to achieve. Different assets require different protection strategies, and various goals may necessitate specific approaches.

Key considerations include:

Nature of assets to be protected: Physical assets, investments, intellectual property, or business interests each present unique challenges and opportunities.
Jurisdictional exposure: Understanding where your assets and business activities exist and the associated risks.
Time horizon: Short-term business objectives versus long-term family wealth preservation require different approaches.
Control versus protection balance: How much direct control you wish to maintain versus the level of protection needed.

A structure that perfectly serves one client may be entirely unsuitable for another. At GWMS Ltd, we begin each client relationship by thoroughly assessing your unique situation and objectives before recommending any specific arrangement.

2. Evaluate the compatibility of GBC/AC and Trust structures

Not all corporate and trust structures work well together. The compatibility between your GBC/AC and the trust arrangement is crucial for long-term success.

Important compatibility factors include:

Structural alignment: Ensuring the corporate objectives of the GBC/AC align with the trust’s purpose.
Operational efficiency: How the day-to-day management of the GBC/AC functions within the trust arrangement.
Flexibility for future changes: Building in adaptability to accommodate evolving business needs or family circumstances.
Governance mechanisms: Establishing clear rules for decision-making across both structures.

A properly aligned structure provides seamless interaction between the corporate vehicle and the trust, ensuring each complements rather than complicates the other.

3. Thoroughly assess legal and tax implications

Perhaps the most complex aspect of combining GBC/AC structures with trusts involves navigating the legal and tax landscape across multiple jurisdictions.

Critical considerations include:

Substance requirements: Ensuring sufficient economic substance in Mauritius to meet international standards.
Beneficial ownership reporting: Understanding disclosure requirements across all relevant jurisdictions.
Tax treaty benefits: Maximising available benefits while ensuring compliance with anti-avoidance provisions.
Future-proofing: Anticipating regulatory changes that might impact your structure.

The international tax landscape continues to evolve rapidly, with initiatives like BEPS (Base Erosion and Profit Shifting) and increased information exchange between tax authorities. A structure that fails to account for these developments may provide short-term benefits but long-term complications.

4. Select a Management Company with appropriate expertise and reputation

The final – and arguably most important – parameter is the quality of the professionals guiding your structuring decisions and managing your arrangements.

When selecting advisors, consider:

Specialised knowledge: Experience specifically with combined GBC/AC and trust structures, not just general corporate or trust work.
Multi-disciplinary capabilities: Access to expertise across legal, tax, corporate and fiduciary disciplines.
Regulatory standing: Clean regulatory history and good standing with relevant authorities.
Leadership of the Management Company: Extensive track record with clients having similar needs and objectives.

At GWMS Ltd, our team brings decades of combined experience in international corporate structuring and structure planning, with particular expertise in Mauritius-based solutions.

Achieving the ideal balance

When these four parameters are carefully considered and properly addressed, the resulting structure can indeed provide that coveted peace of mind. Your assets receive robust protection, your business operations maintain necessary efficiency, and your family’s financial future becomes secure through effective succession planning.

The key lies in recognising that this is not a do-it-yourself project nor a one-size-fits-all solution. Each structure must be customised to the specific circumstances and objectives of the client, then implemented with precision and maintained with diligence.

Contact GWMS Ltd today to successfully structure your GBC/AC with a Trust

If you’re considering structuring a GBC or AC with a trust arrangement, contact our team at GWMS Ltd for an initial consultation. We’ll help you navigate these critical parameters and develop a structure that truly provides the comprehensive protection and planning you seek. With the right structure and the right advisors, you can achieve that elusive complete peace of mind about both your business assets and your family’s financial future.

Asset Protection Through GBC/AC Integration with Trust Structures: 5 Case Studies

08/02/2025/0 Comments/in Company Structure

In an era where wealth preservation and succession planning have become increasingly complex, sophisticated investors and business owners are seeking robust solutions that combine asset protection with efficient wealth transfer mechanisms. The integration of Global Business Companies (GBCs) or Authorized Companies (ACs) with trust structures has emerged as a powerful strategy, particularly through the Mauritius International Financial Centre (IFC). These innovative structures not only provide comprehensive asset protection but also facilitate smooth transition of wealth across generations while maintaining tax efficiency and regulatory compliance.

Understanding the Synergy Between GBC/AC Structures and Trusts

The combination of GBCs/ACs with trust structures creates a powerful framework for asset protection and wealth preservation. These case studies demonstrate how this integration has helped various clients achieve their financial and family security objectives while maintaining compliance with international regulations.

1. Successful integration of a family business with a trust and GBC for generational wealth

A prominent Asian family-owned manufacturing business faced the challenge of transitioning leadership across three generations while protecting their international assets. By establishing a GBC in Mauritius to hold their operating companies across Southeast Asia, combined with a discretionary trust structure, they achieved:

Seamless business continuity and professional administration
Protected family interests through structured governance
Efficient distribution of income to family members across multiple jurisdictions
Reduced family conflicts through clear succession planning
Tax-efficient structure compliant with international standards

The integration allowed the family to separate ownership from management while maintaining strategic control at the level of the board of the GBC while the discretionary trust is entrusted to a reputable, experienced and well established licenced Corporate Trustee like GWMS Ltd, ensuring their business legacy continues to thrive across generations. The family can rest assured that the interests of the nominated beneficiaries of the trust are overseen by a Protector, as per the trust legislation of Mauritius, whom the family may appoint as they wish.

2. High-net-worth individual using GBC and trust for tax optimisation and asset protection

A European entrepreneur with significant investment portfolios across multiple countries sought to optimise his tax position while ensuring robust asset protection. The solution involved:

Establishing a Mauritius GBC to hold international investments
Creating a discretionary trust with tailored distribution policies
Implementing professional investment management services
Structuring compliant tax planning across multiple jurisdictions
Developing clear succession planning for future generations

This structure provided the client with significant tax advantages while ensuring their wealth remained protected and professionally managed by his – appointed advisor or future generations. It is important to distinguish and aptly document the role of the corporate trustee and the investment advisor appointed by the client.

3. Effective use of a trust and GBC to safeguard assets from legal disputes

A successful business owner operating in a high-risk industry needed to protect their assets from potential litigation. The integrated solution included:

Formation of a Mauritius GBC to hold operating companies
Establishment of an asset protection trust
Implementation of ring-fencing strategies for different asset classes
Development of robust governance structures
Creation of clear separation between personal and business assets

This arrangement successfully protected the client’s assets while maintaining operational flexibility and ensuring compliance with relevant regulations.

4. Cross-border business using GBC and trust for international asset protection

An international trading company operating across Africa and Asia required a structure to protect their assets while facilitating cross-border operations. The solution comprised:

Establishment of a Mauritius GBC as a holding company
Creation of a trust structure for asset protection
Implementation of efficient treasury management systems
Development of tax-efficient cross-border payment structures
Setting up of professional management services

This integrated approach provided the client with both operational efficiency and robust asset protection while optimizing their international tax position.

5. Trust and GBC structure securing financial future for a blended family

A high-net-worth individual with a blended family sought to ensure fair distribution of assets while protecting family harmony. The solution included:

Creation of a Mauritius GBC to hold family investments
Establishment of a discretionary trust with specific distribution provisions
Development of clear governance structures
Implementation of professional wealth management services
Creation of separate trusts for different family branches

This structure successfully protected family wealth while ensuring fair treatment of all family members and maintaining family harmony.

These case studies demonstrate the effectiveness of integrating GBC/AC structures with trusts for comprehensive asset protection and family security. Key success factors include:

Professional administration and governance
Clear succession planning
Tax efficiency and compliance
Asset protection strategies
Family harmony preservation

Start Building Your Legacy Today: Partner with GWMS for Comprehensive Wealth Solutions

At GWMS Ltd, we understand that each client’s situation is unique and requires a tailored approach. Our team of experienced professionals works closely with clients to develop integrated solutions that meet their specific needs while ensuring compliance with international regulations.

Our global reach through GMNI, combined with our deep understanding of international financial centers, positions us uniquely to help clients achieve their wealth protection, asset protection, tax mitigation and family security objectives. Whether you’re looking to protect business assets, optimise tax efficiency or ensure smooth succession planning, our integrated GBC/AC and trust solutions can provide the peace of mind you seek.

In certain cases, an AC may be more appropriate and cheaper to set up and maintain than a GBC, especially where there is no need for tax treaty benefits and no financial services are involved.

Contact our team today to discuss how we can help you develop a structured solution that protects your assets and secures your family’s financial future.

4 Expert Strategies for Optimal Global Business Company / Authorised Company Administration in Mauritius

28/01/2025/0 Comments/in Business Administration

Navigating the world of international business through Mauritius offers unique opportunities, but it demands a precise balance between tax efficiency and compliance. For Global Business Company (GBC) and Authorized Company (AC) operators, achieving this balance can be challenging. GWMS Ltd reveals through this guide how to optimize your international business structure through the Mauritius International Financial Centre (IFC) while maintaining complete peace of mind.

The challenge of international business administration in Mauritius

Operating through the Mauritius International Financial Centre offers compelling advantages for global businesses. The jurisdiction’s robust regulatory framework and attractive tax benefits position it as a strategic hub for international operations.

However, this opportunity requires careful navigation. Maximizing benefits while ensuring compliance with often complex local and international regulations demands expert knowledge and continuous oversight – a balance that allows business owners to focus on growth while maintaining optimal tax efficiency and regulatory adherence.

Key steps to achieve tax-optimized and compliant business operations

Successfully managing your international business structure requires a systematic approach that combines expertise, strategy and technology. The following four pillars form the foundation of effective GBC or AC set up and ongoing administration, ensuring both optimal tax efficiency and robust compliance while providing you with the peace of mind needed to focus on business growth.

1. Engage a reputable Management Company with proven expertise

Selecting the right management company is crucial for your business success. Look for a firm like GWMS which is licenced by the Mauritius Financial Services Commission (FSC) with proven expertise in:

International tax planning and optimization
Cross-border business structuring
Regulatory compliance management
Multi-jurisdictional experience
Strong professional networks and global reach

A qualified management company brings valuable insights into tax treaty benefits, substance requirements and regulatory obligations. They should demonstrate a track record of successfully setting up and administrating GBCs and ACs, maintaining strong relationships with regulatory authorities and staying current with local and international tax developments.

2. Implement a robust compliance and tax planning strategy

Effective tax and compliance management requires a comprehensive strategy that encompasses:

Regular tax assessments and optimization reviews
Compliance monitoring and reporting schedules
Clear documentation and record-keeping protocols
Risk assessment and mitigation procedures
Corporate governance frameworks

Your GBC/AC’s strategy should address both immediate compliance requirements and long-term business objectives. This includes maintaining economic substance, where applicable, implementing proper board procedures and ensuring transparent financial reporting. A well-structured strategy helps identify opportunities for tax optimization while maintaining full compliance with regulatory requirements.

3. Regularly review and adjust your business structure

The local and international tax and regulatory landscape is constantly evolving. Regular reviews help ensure your business structure remains optimal by:

Evaluating the effectiveness of current tax planning strategies
Assessing compliance with updated regulations
Identifying new opportunities for tax optimization
Adjusting corporate structures to meet changing requirements
Maintaining alignment with international best practices

These reviews should consider changes in domestic regulations, international tax treaties and global standards such as BEPS requirements. Your Management Company should proactively recommend structural adjustments to maintain optimal tax efficiency while ensuring continued compliance.

4. Utilise effective tools and systems for monitoring and reporting

Modern business administration requires effective and efficient tools and processes such as:

Effective compliance monitoring processes
Timely reporting in line with risk assessments
Efficient record keeping methods
Competent application and monitoring of a risk based approach to compliance instead of a routine checklist approach

Robust and efficient processes help streamline operations, reduce manual errors and provide better visibility into your business compliance performance. They enable proactive compliance management and timely reporting to regulatory authorities, while maintaining comprehensive audit trails for all corporate activities.

By implementing these key strategies and working with a competent Management Company, you can achieve the peace of mind needed to focus on growing your international business. The right combination of expertise, strategy and tools ensures your GBC or AC remains optimized for tax benefits while maintaining full regulatory compliance.

The bottom line

Your Management Company should serve as a trusted partner in navigating the complexities of international business, providing the support and expertise needed to maintain an efficient and compliant corporate structure. This allows you to concentrate on your core business activities with confidence, knowing that your Mauritius-based structure is being managed optimally.

Remember that successful international business expansion requires ongoing attention and expertise. Engage with professionals who understand both the opportunities and obligations of operating through the Mauritius IFC, and who can help you maintain the perfect balance between tax optimization and regulatory compliance.

Take the next step towards optimized global business management

Optimize your GBC or AC structure with GWMS Ltd. We bring over two decades of expertise in international business set up and ongoing administration through the Mauritius IFC and beyond. Our team of specialists is ready to help you achieve tax efficiency while ensuring full compliance. Contact us today to discuss how we can support your international business growth with confidence.

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